The controversy surrounding payment protection insurance (PPI) dates back to 1998 when Which? magazine published a report alleging that policies were regularly being mis-sold to consumers. It claimed customers who bought PPI – which is used to cover payments on credit cards, loans and mortgages
in cases of illness or unemployment – were rarely able to compare prices and terms or switch providers, and were often unaware that they could purchase insurance from other companies.
Over the next seven years similar allegations were made in the national press, but the issue only really took off when the Citizens Advice Bureau issued a super-complaint to the Office of Fair Trading (OFT) in 2005. The OFT carried out a market investigation, and two years later it formally referred the matter to the Competition Commission.
The big bang came in January 2009 with the publication of the commission’s final report on PPI, which concluded that there were ”serious deficiencies” in the competitive process for the sale of PPI.
Some of the recommendations had a big impact on companies selling PPI, particularly the major UK banks. They included a ban on selling PPI to customers at point-of-sale (companies would have to wait at least seven days to make an approach) and a ban on selling single-premium PPI policies, where the premium is paid in one upfront payment.
While the report sent shockwaves through the financial services community it was Barclays that emerged as the forerunner in challenging it. While Barclays voluntarily stopped selling single-premium policies after the report was published, what most concerned it was the point-of-sale ban. Its opposition was coordinated by group competition law managing director Nicola Northway, the former Ofgem general counsel who joined
the bank in 2005.
“When the commission came out with its final report we were concerned about several points, chiefly the prohibition on selling PPI at point-of-sale,” says Northway. “Obviously people should be allowed to go away and shop around, but most like to take out insurance when they get credit. We felt taking away this option would reduce competition.”
Barclays accepted all the recommendations in the commission report except two – the point-of-sale ban and the scope of the market definition made by the commission.
Recommendations by the commission to remedy an adverse effect on competition or customers can be pursued under Section 134 of the
Enterprise Act 2002.
Northway and her team decided to appeal the recommendations under Section 179 of the same act. Companies have just two months from the publication
of the final report to lodge an appeal, so the team had to move fast. And things were further complicated by the fact that from a legal perspective, they were in uncharted terrain.
On the day the appeal was lodged, no company had successfully challenged recommendations made in a final report by the commission, although in April 2009 Tesco successfully appealed against recommendations made in a market investigation into the supply of groceries in the UK.
“We moved first, so in many ways we were in new territory,” says Northway. “That was exciting for us – it was nice to be at the cutting edge of
The five-day hearing began on 7 September 2009. Northway was responsible for pulling together the bank’s response to the recommendations, working with colleagues from the regulatory, compliance and consumer departments.
“Things aren’t straight forward competition anymore,” she says. “We can’t say, ’this is a competition matter and we’re running it’. The scope of the market studies means there’s a lot of crossover with other departments.”
Northway also coordinated the bank’s legal advisers. The bank turned to longstanding adviser Clifford Chance, with a team led by global antitrust litigation chief Elizabeth Morony and competition partner Oliver Bretz.
When Northway joined she was the only competition lawyer at the bank. Fortunately, by the time the PPI issue had taken off, the team included five lawyers.
The judgment was handed down in October 2009 and Barclays became only the second company to successfully appeal commission recommendations at the Competition Appeal Tribunal, forcing the commission to reassess its stance on the point-of-sale prohibition. Its appeal against the scope of the investigation was not upheld.
“Often, people think it’s more exciting to be in a law firm doing competition – they think all we do is sit around advising external counsel,”
Despite the success of the appeal, the banks had another setback in May 2010 when the commission published its provisional decision on the point-of-sale issue, in which it continued to support prohibition. This was reiterated last November when the commission’s draft remedies order on PPI again supported the ban. The final remedies order is expected in February 2011.